January 11, 2018 -
A trendy debate among financial types is whether the economy is in the late-stages of this current expansionary cycle. Fund managers assume there are identifiable stages to periods of growth in the economy. Many think there are some signs popping up of late-cycle froth in this current market upswing. One eminent name weighing in on this debate over the last week was David Rosenberg, a former chief economist for Merrill Lynch. These days Rosenberg works for a Toronto-based firm, Gluskin + Scheff. He’s developed a solid following over the years for his level-head, rational take on markets. Weighing in on the debate about the maturity of this current market cycle he pointed out signs of a late-cycle environment, including high rates of employment and a peak in auto sales. Both of these events find confirmation in the latest stats. Other signs include a signalling of intention by central banks that rates are going to tighten and a reduction in the difference between interest rates on 10-year bonds and two-year bonds (the so-called ‘flattening’ of the yield curve). No one wants to call an end to the bull-market but both of these events have also found confirmation of late, and so it’s not out of line to say that while the economic expansion won’t necessarily end in 2018, it is getting into a mature phase. Something to keep in mind.
In last week’s stock report column it was mentioned that 2018 could be the year the mass retail market is flooded with the biometrics-based credit cards. A couple of news bits from this week add weight to that argument.
Many see fingerprint-activated payment cards as the next step in card-based payments. Having users provide biometric confirmation on a card gets rid of the need for a PIN number. It also allows the elimination of transaction limits on contactless payments. And so it is thought the adoption of this technology is going to happen sooner than later. This seems a solid assumption in light of recent events.
Earlier this week Norwegian biometric tech company IDEX ASA announced it is poised to, “… begin shipping commercial biometric card volumes this year.” According to a press release the company is making rapid progress commercializing the product and has just commenced the certification process for the card. “The certification process is expected to complete early in the second quarter of 2018, and is the final stage before volume shipment of biometric cards to end customers… This includes commercial launch preparations with previously announced partners, and commercial trials for additional end customers,” according to a press release. Feitian Technologies, a Beijing-based company, is ready to roll out the product. The company is described a major provider provider of authentication products for online banking in China, which bodes well for the success of the card. The Chinese retail banking market is absolutely massive. According to IDEX management, “It is clear from the engagements that there is rapidly growing demand from customers in Asia for multiple application verticals, including ID and access control. These programs are fast moving, and as a result of recent product sampling, IDEX expects these engagements to result in product orders in the first half of 2018.” The company went on to say the total, “… addressable market represents a fast-growing multi-billion unit opportunity.” That is, the momentum behind a major roll out of biometric cards continues to build.
IDEX management appeared this past week at the Consumer Electronics Show (CES) in Las Vegas. This is the major annual gathering for those sussing out the latest in digital gear. The CEO of IDEX, Dr. Hemant Mardia, delivered a presentation for investors. He explained that the company is now, “capturing the second wave,” of retail-consumer targeted biometric technology. According to Mardia the first wave of biometric tech was the earlier generation of glass and plastic-covered fingerprint sensors found on smartphones. That first wave of sensors was ‘catalyzed’ by Apple. But according to the presentation the second wave of sensor technology will be driven by a financial services company, MasterCard. The company’s biometric solutions division is hoping to improve convenience and security by adopting fingerprint scanning. As one of the world’s largest providers of cards, MasterCard is defining industry standards, driving the certification process and overseeing the supply chain ecosystem to ensure the roll out of this next-level tech occurs without any problems. All of which works to the favour of the IDEX product.
IDEX ASA trades on the Oslo stock exchange. Shares are currently trading at NOK 5.37. That’s up from the NOK 1.20 that shares traded at during points in 2014. But that price is off 2016 highs. Will the coming commercial rollout see IDEX shares recover that ground? Arguably. The company also just announced it expects to begin sending out samples of a “large area” sensor to customers in the first half of 2018. “Unlike smartphones, sensor solutions for biometric card applications must work within very tight power, processing and memory constraints and also do not have a screen to give simple user feedback during the enrolment process. These unique challenges for cards mean there is a real need for larger sensors to get enrolment to be really fast and accurate,” said Stan Swearingen, chief of product development. Before that product hits the market however, expect the rollout of the standard fingerprint-based smartcard to drive results at the company.
Another news bit this week concerning biometrics-based smart cards comes from Fingerprint Cards AB (FPC). This past week the company announced that its sensors have now been incorporated into an amazing 300 different models of smartphones. According to the firm, “This is an outstanding figure, far beyond the closest competitor… There are virtually no limits on where we can place biometrics on a smartphone today, or what functions and features to enable.” But FPC is also moving beyond smartphones. In a recent presentation company managers outlined a story about market evolution similar to the one IDEX tells. According to FPC the growth of the fingerprint sensor market can be divided into three eras. Era number one occurred when biometrics was established in a mass-market product in smartphones. The second era in this market evolution will be characterized by increased confidence in biometric technology as more applications are added, such as secure payments. “This phase would include the application of biometrics in additional devices such as smart cards,” according to FPC. This is the era we’re now entering, and FPC is a player in this phase. This past week news emerged that FPC’s 1300-series sensors will be used in a card about to be issued by the Bank of Cypress. The product has been developed by Gemalto. It utilizes an energy-harvesting system from Zwipe. It will be the world’s first fingerprint-based, biometric contactless credit card. And so while we wait for the third era of biometric adoption to occur (an era when biometrics are accepted as a natural part of everyday life and are used on many devices according to FPC) it seems clear that phase two of the retail market-based biometric revolution is well underway.
Interest in FPC’s products can be seen in the organization’s statement of income, which shows rapid growth over the past three years. The NOK 233.600 in revenue recorded in 2014 expanded to 2,900,000 in 2015 and then 6,638,300 in 2016 (the company reports 2017 numbers in coming months). The increase in income has seen shares in FPC graduate to the Large Cap list on Nasdaq Stockholm. (Shares in FPC were initially floated on the Stockholm Stock Exchange in 1998.) Shares in FPC are currently trading just under SEK 16.50.
Capping off the recent news in this sector is a deal that sees FPC’s partner, Gemalto bought out by major French aerospace and defense company, Thales. This column reported a couple weeks ago that an unsolicited bid for Gemalto from another French tech firm, Atos, had been rejected out of hand by the Gemalto board. The Atos offer of EUR 4.3 billion (about USD $5.1 billion) “significantly undervalued” the company according to management. It was thought Atos was trying to take advantage of a dip in the Gemalto stock price brought on a by a shift in strategy and a couple of missed earnings targets. The Gemalto board of directors was having none of that. At the time the board released a press notice saying it was rejecting the offer from Atos, which directors called “opportunistic.”
Since then Thales has stepped in with a €51 per share offer (about USD $5.43 billion). The Gemalto board said yes to that offer in the weeks before Christmas. The acquisition will see Gemalto become part of a company that operates in the aerospace, defense, space and transportation markets, and that also operates a security division. The CEO of Thales was quoted at the time of the deal as saying that the acquisition will, “… accelerate its development and deliver its digital security vision… Together with Gemalto’s management, we have big ambitions based on a shared vision of the digital transformation of our industries and customers.” Biometrics-based technology will be a part of this plan. That Thales ended up offering a 57% premium to the price of Gemalto shares is perhaps the biggest indication of the interest in the digital security revolution currently underway.